Run a keyword search on hard money loans and you will discover one of the most frequently asked questions about this form of financing: are hard money loans difficult to get? The answer is both yes and no. They are hard to get from some lenders and for some purposes. They are not hard to get if you go to the right lender for the right purpose.
If all of this sounds confusing, no worries. A lot of people find they don’t know much about hard money loans when the topic comes up. Hard money lending is certainly not as common as traditional lending. It is designed for a limited audience with very specific funding needs.
What It Actually Is
The first thing to know is what hard money lending actually is. Hard money lending is asset-based lending. This is to say that lenders make loans based on the value of assets offered as collateral. Consider Actium Partners out of Salt Lake City, Utah. The firm frequently lends to real estate investors looking to obtain new properties.
Let us say Actium is asked to fund a Salt Lake City property acquisition. The property being acquired acts as collateral on the loan. Actium’s approval will be based primarily on the value of that property. If it is worth enough, approval will be easier to secure.
Lenders Have Their Criteria
The Actium Partners example is a natural lead-in to discussing why some hard money loans are hard to get. If you were looking for hard money to fund a fix-and-flip business, Actium Partners would not be a good choice. For whatever reasons, they have decided not to get involved in the fix-and-flip industry.
Some hard money lenders stay away from fix-and-flip in order to concentrate on commercial real estate deals. Others see fix-and-flip as too risky. On the other hand, there are those hard money lenders who specialize in the fix-and-flip market. To each their own.
No Hard Money for Primary Residences
It is also hard to obtain hard money to purchase a primary residence. Almost no hard money lenders will get into that sort of thing. Primary residences are funded by standard mortgages. They are the domain of banks and credit unions.
One exception here is a bridge loan obtained to facilitate the purchase of a new primary residence while the buyer’s current residence is up for sale. Bridge loans are a form of hard money lending. However, bridge loans of this type are usually provided by banks rather than hard money lenders.
Less Paperwork, Fewer Requirements
Provided a borrower approaches the right hard money lender for the right purpose, loans are easy to get thanks to less paperwork and fewer requirements. For starters, hard money’s nature as an asset-based product mitigates the need for lenders to dig through every detail of a borrower’s financial life.
A borrower’s credit score and financial history rarely have a place in a lender’s approval process. Truly, lenders base approval mainly on the value of the borrower’s collateral.
As far as paperwork is concerned, requirements are a lot less in the hard money environment. Borrowers don’t have to worry about providing an endless list of documents. They do not have to fill out one application after another. All in all, the application and approval processes are easy and straightforward.
Hard money loans are fairly easy to get when you approach the right lender for the right purpose. They do not require a whole lot of paperwork. They also don’t require stellar credit or the ability to prove one’s financial resources. Collateral is what makes it all work.